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Consultation on Charities That Are Connected with Non-Charitable Trading Organisations

By Julia Penny

The Charity Commission issued this consultation on the 13 February 2018, with the aim of improving the way that charities interact with connected organisations that are non-charitable. The guidance is for charity trustees of a charity which is connected with a non-charitable organisation such as a:

> trading subsidiary;

> commercial business;

> not-for-profit organisation.

Connected, for the purpose of the guidance, means a deliberate connection, such as through ownership of shares, common personnel or purposefully having the same or similar name. There is further guidance as to what will constitute a connection for this purpose within the draft guidance.

The reason for issuing the guidance is that a charity can only have a relationship with a connected non-charitable organisation if it furthers or helps to further the charity’s purposes and is in the charity’s best interests. The Commission has seen a number of instances in the recent past where such relationships haven’t been handled correctly by trustees and so wants to highlight the necessary steps in this guidance.

The backdrop to the guidance is the importance of trustees understanding their legal duties and being able to recognise the risks that can arise. The guidance will therefore help trustees:

  • Comply with their legal duties;
  • Preserve their charity’s unique status ;
  • Prevent the benefits of charitable status being conferred on the non-charitable organisation;
  • Protect the charity’s separate public interest;
  • Take steps if things go wrong.

The key areas that trustees must consider with regard to their relationships with non-charitable organisations are set out in the draft guidance as follows:

1.       Comply with your trustees duties

2.       Keep the charity separate – don’t blur the boundaries

3.       Make independent decisions

4.       Avoid conflicts of interest and conflicts of loyalty

5.       Personal benefits – authorise or avoid

6.       Use written agreements

7.       Be open and accountable

8.       Manage the risks, review the relationship

There is also guidance on what to do when things go wrong and registering a relationship with a non-charitable organisation with the Charity Commission. We will look at just a few of these areas in the summary below.

Trustee duties

The draft guidance reminds trustees of their general duties as set out in CC3 The Essential Trustee. It then explains how those duties might be fulfilled in respect of connected non-charitable organisations. For instance, the trustees must ensure that the charity is carrying out its purpose, so if it is making grants to a non-charitable organisation to deliver projects for it, the trustees must ensure that these projects only further the charity’s purpose and that they are for the public benefit.

The draft guidance points out that things may change over times, so whilst a trading subsidiary may have been in the charity’s best interests when it was set up, continuing the relationship may not be. Trustees must therefore be alert to these risks and regularly reassess compliance with their duties.

Keeping your charity separate

It is particularly important that there is no blurring of the lines between the charity and non-charitable organisation. This means that trustees must be careful to decide what shared resources are recharged to the non-charitable organisation if staff or other resources are shared. This might mean a proportion of a director’s salary is cross-charged to reflect the work done in the trading subsidiary for example. Decision-making must also clearly be made with the charity’s best interests in mind and trustees must be able to demonstrate that such decisions are made independently and only with the charity’s interests in mind.

The draft guidance sets out useful examples to demonstrate how a charity’s trustees may fall foul of the need to always ensure they are acting in the charity’s best interest. For instance, an educational charity jointly providing webinars with a non-charitable organisation that is connected, needs to be able to demonstrate that they are furthering the charity’s own purposes, not just that the education is roughly aligned to their purposes.

Written agreements

To limit the risk of misunderstanding, conflicts or disputes, trustees should use written agreements or contracts to define the arrangements with non-charitable organisations with whom they are connected. These might cover areas such as:

  • Data sharing;
  • Sharing the charity name or logo;
  • Sharing a website;
  • Sharing staff or premises;
  • Clarifying who is doing what in the organisations’ communications;
  • Other services (e.g. safeguarding).

Common issues

The draft guidance sets out quite detailed explanations and examples in respect of common issues likely to arise as follows:

  • Providing funds to the non-charitable organisation;
  • Receiving funds from the non-charitable organisation;
  • Completing shared projects or delivering services together;
  • Involving the non-charitable organisation in fundraising;
  • Sharing names, branding and websites;
  • Sharing communications;
  • Sharing information or data;
  • Sharing premises or staff.

Conclusions

The draft guidance is 39 pages long and therefore a long read for any charity trustee, given all of the other guidance that they must digest. However, many of the principles and details covered are clearly important and create a real risk of charity trustees falling foul of their duties. The Commission has also issued a handy “at-a-glance” summary which will help trustees understand when they need to refer to the more detailed guidance and a checklist to help them review their actions and decisions

It will be important to ensure that you are considering these issues if you are a trustee. If you act for charities with this type of relationship you should also bear in mind the risks reputational damage or of a Charity Commission investigation if the charity is not considering these issues in a robust enough manner (or at all).

 

February 2018 

 

Disclaimer
This article is published with the understanding that SWAT UK Limited is not engaged in rendering legal or professional services. The material contained in this article neither purports, nor is intended to be, advice on any particular matter. This article is an aid and cannot be expected to replace professional judgment. SWAT UK accepts no responsibility or liability to any person in respect of anything done or omitted to be done by any such person in reliance, whether sole or partial, upon the whole or any part of the contents of this article.